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Southern Sun Formula One Large Merger

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					                  COMPETITION TRIBUNAL OF SOUTH AFRICA




                                              Case No:108/LM/Dec11

                                                            [013763]


In the matter between:



Southern Sun Hotels (Pty) Ltd                 Acquiring Firm

And

Hotel Formula 1 (Pty) Ltd                     Target Firm




Panel               :       Yasmin Carrim (Presiding Member),
                             Medi Mokuena (Tribunal Member)
                             Takalani Madima (Tribunal Member)
Heard on          :         14 March 2012
Order issued on   :         14 March 2012
Reasons issued on :         22 March 2012


                            Reasons for Decision




Approval

   [1] On 14 March 2012 the Competition Tribunal approved the merger
       between Southern Sun Hotels (Pty) Ltd and Hotel Formula 1 (Pty) Ltd.
       The reasons follow below.




                                                                         1
The Transaction

   [2] The target company, Hotel Formula 1(Pty) Ltd (“Hotel Formula 1”) is a
       joint Venture between Southern Sun Hotels (Pty) Ltd (“Southern Sun
       Hotels”) and Accor SA. Southern Sun Hotels is increasing its 47.4%
       interest to 100% by acquiring the remaining shares of 52.6% held by
       Accor SA, thereby moving from joint to sole control.

   [3] Both the acquiring and target firms are private companies incorporated
       in terms of the laws of the Republic of South Africa. Southern Sun
       Hotels is an indirectly wholly owned subsidiary of Tsogo Sun Holdings
       Ltd. Accor SA is a wholly owned subsidiary of Accor, a company
       incorporated in terms of the laws of France.



The Rationale

   [4] According to Accor it is selling its interest in Hotel Formula 1 because it
       wants to focus on the operational side of running hotels rather than
       hotel real estate which is capital intensive. Southern Sun is exercising
       its pre-emptive right to acquire the shares in Hotel Formula 1.



The parties and their activities

   [1] Hotel Formula 1 provides low budget hotel accommodation, which is
       graded as 1 star. Hotel Formula 1 is located throughout South Africa.

   [2] The Tsogo Sun Group is involved in hotel, gaming, exhibition and
       conference facilities and the entertainment industry and has a local as
       well as international presence. Southern Sun owns 93 hotels in eight
       countries. In South Africa it, inter alia, operates 2/3 star graded hotels
       under the Stay Easy brand in Cape Town, Johannesburg, Nelspruit,
       Witbank, Pretoria, Harrismith and Pietersburg.

   [3] The Commission, in its investigation, found that rates per night for
       single rooms at Hotel Formula 1 were between R437 – R644 and at
       Stay Easy hotels between R549 – R690. The Commission therefore
       decided to define the relevant product market as the market for hotel
       accommodation with a star grading of 1, 2 and 3. Within this product
       market the parties’ activities overlap in Cape Town, Pretoria, Nelspruit,
       Witbank and Johannesburg.




                                                                                2
The impact on competition


[4] The Commission had calculated the market shares by using the
    number of rooms available in each geographic area. According to the
    Commission it was conservative in its approach and did not include all
    the establishments available in an area, for instance it did not include
    Bed and Breakfast accommodation. It only included the top 10
    establishments per area. Based on this methodology it calculated the
    merged entity’s market share post the transaction as:




                 City                       Post Merger Market share %



Cape Town                                                12

Johannesburg                                            19.5

Pretoria                                                 9.9

Nelspruit                                                16.4

Witbank                                                  19.6




[5] As indicated above there are a number of low budget hotels and Bed
    and Breakfast accommodation in each city that have not been taken
    into account in calculating the market shares. A number of travel
    agencies indicated to the Commission that it was easy for them to
    switch between different hotels in these geographic areas, indicating
    that countervailing power exists in the market. Barriers to entry are high
    though not insurmountable and according to the Tourism Grading
    Council it would only take approximately three years for a new entrant
    to enter the market and become competitive.

[6] The hotel industry in South Africa is currently facing a difficult period
    after the soccer world cup with less demand for local accommodation.
    The worldwide economic downturn has also had a negative impact on
    the tourism industry and local travellers tend to return to their home
    towns after business appointments to save costs rather than overnight
    at a hotel. The decrease in demand has lead to an oversupply of
    accommodation in the main cities.




                                                                            3
   [7] In light of the above, we find that the transaction would not substantially
       prevent or lessen competition in the relevant geographic markets.



CONCLUSION

   [8] There are no significant public interest issues and we accordingly
       approve the transaction.




____________________                             22 March 2012
Yasmin Carrim                                          DATE

M Mokuena and T Madima concurring.


Tribunal Researcher:        Rietsie Badenhorst
For the merging parties:    Nortons Inc
For the Commission:         Bheki Masilela




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